Readers know that I’m a fan of Mariko Gordon of Daruma Capital. Below is an excerpt from her recent March 2013 Letter. Although she is referring specifically to equities, I think her comments are applicable to all portfolio assets. Lao Tzu wrote that “He who knows others is wise; he who knows himself is enlightened.” This letter perfectly showcases why I’m a fan of Gordon. She is already a successful investor running a successful investment management firm. Yet she never stops searching for incremental knowledge – of herself, her results, her surrounding environment – striving for improvement. She is aware of the competitive nature of this business, and how she fits into that landscape. There are no illusions here…or at least that’s the goal. All that we are, as it pertains to investing (and sometimes even personal tendencies), is stripped bare and evaluated for the good and the unpleasant. The willingness to withstand such scrutiny, and reexamination year after year, is the mark of great investors.

Mistakes, Process Over Outcome, Psychology, When To Sell, When To Buy

“The investment case must be made in a completely detached way. A stock doesn't care whether you own it or not, or whether you had a good or bad "relationship" with it during the course of your ownership. A stock is not your friend. It doesn't give a crap about you, and you should reciprocate that indifference.

All of my investment process mistakes (as opposed to all my bad outcomes - this is an important distinction, as one can have bad outcomes despite a good process) have always come from a place of emotion. Every single one, whether it was a purchase or a sale.

By contrast, my best decisions in fraught times have been when I have accessed that place of flow and clarity by being entirely detached emotionally. It turns out that for someone who tends to be very expressive and prone to hyperbolic language, I can be quite cold blooded and calculating when I need to be, for the good of the portfolio.”